A Debt Payoff Milestone

A Debt Payoff Milestone

I have made it no secret on this blog how I want to be out of debt as soon as possible. I throw every extra dollar that I can at some level of the debt. So far I have made some pretty good progress. In earlier post I noted how I was back on track and ready to meet my goal of paying off 10% of my total debt by the end of the year. All of that is still true. In fact, if I just pay my normal payments I should not only meet that goal, but exceed by a couple hundred dollars.

One of the other things that I have not shared about my debt repayment plan is that I want my personal loan (just over $17000 a couple of weeks ago) paid off first. That is the first debt to go. I have had the loan for just over 15 months. It started off at $32000.

So my milestone is this as of the 15th of last week I had paid off over half of the loan $16000 in just over 15 months. Now that might not seem like a lot, but considering that my goal was to have this loan paid off within three years it is a pretty big deal. I have declared that I want to be consumer debt free by the time I am 45. I am not sure that I can accomplish that with my current debt payoff rate, but I will at least have this paid off within the next year. But there might be a hiccup?

My Dilemma

Despite my current progress toward paying off this loan I am not sure I should be paying it off so fast. I mean I have almost four years to pay it off and the interest rate on the loan is 2.39%. So it is super low. My dilemma is should I continue paying this off as fast as possible or deploy my resources toward other debts? (e.g. mortgage, student loans). I mean I have been paying off my student loans for over 8 years and I am only just 1/3 of the way through paying those off. I hope to accelerate those debts more.

The good thing is that if I were to pay off this loan quicker I would have a lot of money to free up per month that could go to other things (e.g. student loans, investing, etc). I have low-interest rates on all of my debt. The highest interest rate is 4.5% and that is on my student loans. I can make more money in the stock market if I invest it. So while this is a great milestone I could’ve deployed those monies in a different direction and got more of a return on my investment. If you were me what would you do? Accelerate the debt payment on the one loan? Move some extra monies to other debt? Or invest it and begin a brokerage account?

6 thoughts on “A Debt Payoff Milestone

  1. I’m sure you already know that if you pay off the loan with the highest interest rate you will “save” the most money in the end. But there is something to be said about paying off smaller loans. Even though you have loans with slightly higher interest rates, accomplishing small goals, like paying off the personal loan, may keep you motivated to continue to pay off debt at a higher rate. Really in the end, whatever you choose to do is a great decision because it’s paying off debt.

    1. Hi Sam, you are certainly right in that you save the most money, but behavioral studies demonstrate that you actually sustain momentum more by paying off the smallest balance first. This is one area I agree with Dave Ramsey on. At the same time, b/c the interest is so low I could make more money just by picking good stocks that offer a higher dividend. Hence a bit of a dilemma. The question is get rid of the debt now or just do minimum payments (pay it off in 3 years) and invest the rest.

  2. As someone who just paid off my Concordia loans after 23 years, your blog caught my attention! I’d agree with the thinking about the momentum gained by paying of smaller loans. An additional reason to consider this is your credit score. When my wife and I applied for a mortgage last summer, we were initially turned down because we had too many “open lines of credit.” So we paid off our car and one of her smaller student loans, and the mortgage went through. Kind of silly because our savings account showed that we had the assets, but the credit score agencies hold the number of unpaid loans against your credit worthiness. Food for thought.

    1. Hi Christoph. Congrats on paying off the student loans. I know how difficult that can be. My actual credit score is excellent, which is good. And we were able to get a mortgage fairly easily. My big thing is of late trying to decide to pay off this loan first and/or invest the extra money. Still not sure. Maybe pay off the student loans. However, because my interest rates are so low on all my debt (4.5% is the highest) my rational brain says I could make more investing. Not sure what to do yet, but I am certainly envious of you paying your student loans off. Congratulations…great accomplishment. And thanks for stopping by.

  3. Dont forget about risk. If something such as a long term illness were to happen to one of you, you don’t want the additional burden of the debt during such a stressful time. Estimating risk I rational.

    1. Very true. I actually have a post on this tomorrow. I have a new goal regarding debt that I want to see what people have to say. Thanks for stopping by Todd.

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